Despite NAFTA uncertainty, housing markets pulling through - RBC
by Ephraim Vecina 10 Apr 2018 MBN
The CEO of Canada’s largest bank has stated that while uncertainty over the North American Free Trade Agreement talks remains a concern for the bank’s customers on both sides of the border, so far those clients and markets have broadly been working through the uncertainty.
“We are in close dialog with governments and our customers and remain hopeful of a good outcome on both sides,” Royal Bank of Canada chief David McKay said, as quoted by Bloomberg.
The bank is seeing more balanced pricing in the housing market, McKay emphasized. “Policy changes in Ontario and in other provinces have contributed to a welcome shift in market psychology towards more caution, and we remain very comfortable with the characteristics and credit performance of our mortgage portfolio.”
Read more: Housing policies can, and will, affect the economy – TREB
McKay also highlighted the importance of the U.S. for its operations, which includes Los Angeles-based City National Bank, wealth management, and a sizable capital markets operation based out of New York.
“The U.S. is absolutely fundamental to sustaining our growth,” McKay said, noting that the U.S. accounted for 23% of the Toronto-based bank’s total revenue, versus 18% five years ago.
Crucially, McKay stressed that Canada needs to do more to remain competitive, regardless of the results of the discussions around the three-country trade agreement.
“Whatever the outcomes of the NAFTA negotiations, Canada must do more to ensure its competitive edge,” McKay said.
“This is not just about taxes, but addressing how we get our goods and resources to the market, by road, rail, or pipeline, in a sustainable way,” McKay added.
“The Canada of tomorrow will have to be more flexible, more open, and move faster than before.”
Canada's biggest generation is flocking to these cities
by Ephraim Vecina 2018 MBN
In its latest study, real estate portal Point2 Homes found that quality employment and housing affordability are two of the most important factors that push Canadian millennials toward certain metropolitan markets.
The report added, however, that “this upbeat generation obsessed with life-work balance is looking for more than just a well-paying job and a nice house. They want engaging leisure activities, opportunities to socialize with other like-minded millennials, eco-friendly resources, and a safe but exciting city where they can thrive.”
The Point2 Homes analysis found that 7 of the top 10 best cities for millennials have less than 500,000 people living in them.
Quebec City stood as the most appealing Canadian city for millennials, taking into account its unemployment rate (the 3rd lowest in the country) and its healthcare index (the 8th best nationwide), along with affordable housing, above average wages, and low incidence rate of crime.
Read more: Majority of Canadians see real estate as a good long-term investment
Langley Township, BC ranked as the least tempting place for millennials. This is because despite the locale not having any problems when it comes to employment, “it also has a high crime rate and a low percentage of millennials living here. And although a home in Langley sells for less than half the average price of a Vancouver property, its housing market is still severely unaffordable, which puts the township at the bottom of the list.”
Surprisingly, the country’s largest cities – Toronto, Montreal, Vancouver, Ottawa, and Calgary – did not make it even to the top 5 most desirable housing destinations for members of Generation Y.
The full study can be viewed here.
Unexpected GDP contraction attributed to drop in housing, oil output
by Ephraim Vecina 03 Apr 2018 MBN
Canada’s gross domestic product unexpectedly fell in January as the economy faces a broad slowdown after surging last year.
GDP shrank 0.1% during the month, Statistics Canada reported late last week in Ottawa, weighed down by sharp declines in oil production and real estate. This is in contrasts to economists’ earlier predictions of a 0.1% gain.
After leading the Group of Seven in economic growth in 2017, Canada is widely expected to slow this year as highly indebted households pare spending. That should keep some pressure off the Bank of Canada to raise interest rates.
“The economy is slowing down as rate hikes are probably biting,” Toronto-Dominion Bank North American head of FX strategy Mark McCormick told Bloomberg, adding that one more hike is likely this year. The Bank of Canada has raised borrowing costs three times since July.
January’s output drop puts the economy on track for sub-2% growth for a third straight quarter. That would be the slowest stretch since 2015. Compared to a year earlier, output was up 2.7%, the smallest gain in 11 months.
On the plus side, Statistics Canada revised up its estimate for December GDP growth to 0.2%, from 0.1% initially.
Only two of 15 economists surveyed by Bloomberg News predicted a contraction in January. Most see a quick rebound due to the temporary nature of the oil-production curbs.
The monthly decline was the largest since May 2016, driven by a 3.6% drop in oil and gas extraction. Statistics Canada cited a 7.1% reduction in oil sands production due to unscheduled maintenance shutdowns.
Still, the overall trend for slower growth – which began in the second half of last year – remained intact for 2018.
While monthly GDP should bounce back, “we’re going to revise down our Q1 GDP forecast to sub-2 percent, adding weight to our view that the Bank of Canada is on hold until July,” CIBC World Markets chief economist Avery Shenfeld wrote in a note to investors.
Another drag on January output was falling real estate activity as new mortgage qualification rules kicked in, particularly in Toronto. Real estate agents and brokers saw their output drop 13% in January, the largest monthly decline since November 2008 for the industry, as home sales slumped.
Many home buyers rushed to buy homes at the end of 2017 to get ahead of the rules, which had the effect of inflating transaction numbers for December but reducing them for January.
Fiscal watchdogs caution about Canada's untrammelled borrowing spree
by Ephraim Vecina15 Mar 2018
Canada’s mountain of consumer debt is garnering multiple alarms about the threat to the country’s banks.
Moody’s Investors Service joined the Bank for International Settlements and S&P Global Ratings, which have all warned in the last month that Canada’s banking system, dominated by 5 giants, is facing a growing threat of soaring consumer loans amid rising interest rates.
The country’s ratio of household debt to disposable income reached a record 171% in the 3rd quarter of last year. The proportion of uninsured mortgages has increased to 60% from 50% five years ago, including home equity lines of credit, amid government efforts to reduce taxpayer exposure, according to a Moody’s report released earlier this week.
Almost half of outstanding mortgages, many of them on fixed-rate terms, will have an interest-rate reset within the year, increasing the strain on households’ debt-servicing capacity, Moody’s said.
Further aggravating the situation are auto loans which are getting offered at terms as long as 68 months, Bloomberg reported.
However, it’s the unsecured credit-card portfolios that will be the first to feel the pinch as their repayment tends to have lower priority for financially strapped borrowers, Moody’s warned.
All of these consumer loans have so far performed well in Canada as the country boasts the lowest unemployment rate in four decades. The arrears rate is only 0.24% for residential mortgages, 7 basis points below the 10-year average, while the auto-loan delinquency rate is only 1.5%, Moody’s said. Canadian banks have also earned a reputation of being well-managed, conservative institutions after passing through the global financial crisis relatively unscathed.
The warning from Moody’s came after the Bank for International Settlements placed Canada among the economies most at risk of a banking crisis, alongside Hong Kong and China. S&P Global Ratings last month lowered a key risk metric for Canadian banks after evidence of mortgage fraud.
The Bank of Canada held interest rates steady this month after increasing them 3 times since the middle of 2017. The central bank said it will continue to monitor the economy’s sensitivity to higher rates.
Related stories:
Indebted Canadians are slowing down on their spending
Illegally built homes may come with devastating consequences
by Ephraim Vecina Mar 2018
In commemoration of Fraud Prevention Month, Tarion Warranty Corporation has warned would-be house buyers in Ontario that an illegally built home will not only be unsafe, but also come with the possibility that a builder will simply abandon the project altogether upon getting paid.
These homes are also a pain in the wallet, Tarion noted.
“When it comes to the largest investment of a family's life, namely a newly built home, it pays to know that your builder has the technical and financial wherewithal to complete the job and that you have the protection of a warranty if anything goes wrong,” Tarion president and CEO Howard Bogach said.
Bogach added that according to law, every builder in Ontario must be registered with Tarion and must enroll all newly built homes in the warranty program. Municipalities across the province also share their building permit information with Tarion.
Read more: Mortgage fraud could increase next year
The Tarion executive warned that unregistered builders do not necessarily comply with Ontario Building Code specifications, and the new owner can fall victim to shoddy craftsmanship, including dangerous and costly elements such as faulty electricity and plumbing.
Bogach stressed that prospective buyers of new homes need to recognize the signs that a builder might be operating illegally, including:
A builder saying that they built the house for themselves but then decided to sell it
A builder saying they offer their own warranty and the homeowner doesn't need Tarion’s warranty
A builder arguing that the Tarion warranty is too costly (sometimes quoting $10,000 when in fact the maximum cost is $1800 plus taxes.)
A builder offering the consumer a brief contract or, worse, no contract at all
Last year alone, Ontario provincial courts gave 117 convictions related to illegal building, and illegal builders paid almost $400,000 in fines for proceeding without proper registration, warranties, or permits. In 2016, one builder even went to jail.
Brokers wade in ahead of Wednesday's Bank of Canada announcement
by Neil Sharma 06 Mar 2018 MBN
Don’t hold your breath waiting for an interest rate increase on Wednesday.
Canada’s GDP grew at a slightly slower pace than expected in the fourth quarter of 2017, and the likely culprit is Canadians buckling under the weight of their debt.
Paul Meredith, a mortgage broker with CityCan Financial Corporation, doesn’t think the Bank of Canada will announce another prime rate increase tomorrow like it did in January, but he believes there’s at least one more to come before the conclusion of the year.
“I would not expect to see any rate increase this week, however, I think we can expect a rate increase before summertime, and another one possibly later this year,” he said. “Although if the economy continues to remain sluggish, I wouldn’t be surprised if they pushed these rate increases out further.”
Make no mistake, the Canadian economy is still in good shape, and while outrageous household indebtedness is reason for consternation, last year’s fourth quarter growth of 1.7% was a hair short of the 2% projection.
Meredith already had his suspicions that a March 7 prime rate increase might not be forthcoming.
“The fact that bond yields have been dropping since mid-February is also a strong indicator that there won’t be an increase to the prime rate this week,” he said.
Steve Garganis, a Mortgage Intelligence broker, thought as early as a couple of months ago that the rate hike was coming, but pointed to stock market volatility and higher-than-expected unemployment as the reasons he’s changed his mind.
"I did think [there would be a rate increase on March 7] earlier this year, and with the language from the Bank of Canada’s governor, all indications were that they would raise the rates. But I think with the stock market rollercoaster that we’ve seen, some of the latest unemployment stats that are showing that we have higher unemployment—lost jobs—there’s no real reason to raise the interest rate this week.”
Another factor looming over the Bank of Canada pertains to the North American Free Trade Agreement—and, in particular, the ire it’s drawn from U.S. President Donald Trump. Garganis believes a rate hike is a strong possibility on April 18, but noted it could be contingent on the NAFTA rhetoric coming from south of the border.
“I think it’s very possible to see the rates go up in April but I think we’ll just have to wait and see what’s happening in the market,” said Garganis. “Part of what I’m concerned about is this NAFTA thing; it’s a little bit of a wild card. We’re all sitting on our hands because there’s nothing we can do. We can’t make too many plans until that sorts itself out.”
Canadians least likely to shop around for mortgage options – study
by Ephraim Vecina 28 Feb 2018 MBN
In the latest edition of HSBC’s Beyond the Bricks global research series, the bank found that Canadian mortgage holders are among the least likely across all markets worldwide to say they have looked around to see if they can get a better mortgage rate.
Based on the survey of 10,000 respondents across 10 countries, only 50% of mortgage holders in Canada shopped around for options, compared to the global average of 61%. This is in stark contrast to the most active deal-hunters in France (79%) and Malaysia (72%).
The finding indicated considerable risk in light of the fact that “up to one in four current and prospective home buyers expect they’d struggle if mortgage rates were to continue to rise,” according to Larry Tomei, executive vice president with HSBC Bank Canada.
Read more: ‘The government is forcing people into products instead of paying down their debt’
In addition, fully 78% of current mortgage holders in Canada reported that they’ve never experienced a rise in the interest rates on their current mortgage/home loans.
However, despite the prospect of higher rates along with ever-increasing home prices, approximately two in five (37%) prospective homebuyers in Canada are willing to stretch themselves financially to afford a better home, compared to a global average of 41%.
Related stories: Are home equity loans on the rise?
Are home equity loans on the rise?
by Neil Sharma 27 Feb 2018
The Bank of Mom and Dad has become indispensable in major Canadian markets like Toronto and Vancouver, but an increasing number of Canadians could be imperilling their retirements.
First-time buyers typically represent about 40% of annual home sales, but they’re hardest hit by rising interest rates and the 200 basis point stress test. Enter the Bank of Mom and Dad.
“A lot of mom and dads are taking out home equity loans to help their young adult kids get into their first home, and that puts pressure on their financial stability and their ability to assure financial retirement, so any way you look at it,” said Sheri Cooper, DLC’s chief economist.
“Assuming parents of young adults are middle-aged and nearing retirement, it makes it more difficult for them because they won’t have money to retire as securely. Home equity is priced against the prime and it goes up every time the interest rate goes up, so these are interest-only loans not being amortized and they’re not paying off the principal.
The Office of the Superintendent of Financial Institutions’ mandate is to protect the banking system, but it’s also affecting Canadians’ ability to attain homeownership. Pulling out equity lines of credit might be a short-term solution, but Cooper says they aren’t wise.
“It’s one thing to borrow against your home to renovate it and add value to it, but it’s another to give it away,” she said. “You can find yourself in retirement with a significant debt loan, which isn’t the prudent thing to do.”
Frances Hinojosa, a mortgage broker and managing partner at Tribe Financial, hasn’t noticed clients taking out equity lines of credit, but says she’s observed parents already dividing their assets among their children.
“They’re realizing they should pass on inheritances earlier,” she said. Most financial advisers would advise parents to divide assets while they’re still alive and that way they avoid paying taxes.”
She added that it’s a far less risky than taking out a HELOC.
RRSP Deadline is March 1, 2018
Global News
Using RRSP funds for a downpayment boost is more important than ever and a strategy first time buyers want to hear about. New homebuyers can contribute to their RRSP if they have contribution room, withdraw the money after 90 days under the Federal Homebuyer’s Plan, and also use the resulting tax refund to help with their downpayment this spring. But they need to contribute before the deadline!
It’s RRSP season, which means most people will be scrambling to figure out if they should be contributing, what they should contribute and how to go about doing it. Here are 10 things you need to know about RRSPs before the Feb. 29 contribution deadline.
Start early
It may seem crazy to start thinking about your retirement plan when you’re still in your 20s but getting a head start definitely doesn’t hurt. At this age, you’re a lot more likely to have disposable income that won’t be missed so look into how much you are able to contribute and start saving now.
READ MORE: Debt vs. RRSP: What should Canadians put their money towards?
Shop around
Your local bank branch only has a limited number of mutual funds and GICs where you can invest your money. If you have a growing account balance and a good idea of the market, consider a self-directed RRSP. This allows you to select your own stocks, bonds, GICs or mutual funds to invest in giving you more control over how your money will grow.
Get the tax break
The reason everyone starts talking about RRSPs during tax time is because it’s a great way to put some money aside for the future while also enjoying a tax break. Reap the benefits of moving money aside and cutting down your overall payment.
READ MORE: Is your advisor telling you the whole story on fees?
Understand your timing
Just because you can pay your maximum contribution, doesn’t mean that you should. Take a look at what you made this year compared to what you predict your income to look like next year and think about whether it makes sense to contribute the maximum now or to carry some of it over to next year.
Keep an eye on your limit
Each year, your limit will go up. Pay attention to that and be strategic if you plan on making the maximum contribution each year.
READ MORE: 9 easy tips to save $5,000 in 2016
Automate
Instead of worrying about coming up with a lump sum at the end of the year, get automatic deductions taken from salary deposits. At the end of the year the money will already be invested and you won’t even have noticed its absence.
Always contribute
If you already have a pension plan through your work, you’re probably wondering why you should bother with RRSPs. Unfortunately, most pension plans do not cover the full cost of retirement and even top ups from CPP and Old Age security often leave you a little short changed. Contributing to your RRSP is like having a little nest egg – just in case!
READ MORE: The 7 deadly sins of financial planning
Carry over
If it doesn’t make sense for you to make the maximum contribution this year, carry it over to next year.
Don’t touch it
Resist the urge to make any withdrawals before retirement. Though “penalty-free” incentives like the Home Buyers’ and Lifelong Learning plans can be tempting, you will permanently lose the contribution room from making the withdrawal.
Watch it grow
One of the great things about RRSPs is that money benefits from accelerated growth within the account. Unlike a regular savings account (where interest is taxed each year), the funds are only taxed upon removal so as long as you leave them in there, they will grow unhindered.
How Ottawa has become a top real estate market to watch
ADAM STANLEY, OTTAWA: SPECIAL TO THE GLOBE AND MAIL
You could be forgiven if you've paid no mind to Ottawa's real estate market as the action in Toronto and Vancouver has stolen the headlines.
But those in the know are already seeing Canada's capital as a market to watch in 2018 and beyond.
Bank of Montreal Senior Economist Robert Kavcic wrote the Ottawa real estate market was "about to break out" last July and, according to recent statistics from the Ottawa Real Estate Board, the market – long known as a conservative one buoyed by steady government employment and a reliable economy – has done just that.
"Fundamentally, things are playing out pretty well as we would expect," Mr. Kavcic says.
Ottawa's real estate market is one of Canada's strongest and steadiest.
There were 17,803 homes sold in Ottawa in 2017, an increase of 10 per cent over 2016. The condo market had a 22-per-cent increase in sales year over year.
By comparison, sales of condos in Toronto decreased by 9.6 per cent, while its overall residential sales market decreased by nearly 20 per cent – although both numbers compare with a record-breaking 2016. Both Toronto and Vancouver have seen their markets impacted by a new foreign-buyer's tax. Ottawa does not have that.
In addition, the new stress test on mortgages for new home buyers will likely have less of an effect on Ottawa buyers, Mr. Kavcic says.
"In the GTA detached market you probably have quite a few marginal buyers who are really stretching to get in, but those are forced down the price ladder, now having to qualify two points higher," he says.
"In a market like Ottawa where affordability isn't nearly as stretched, my sense is – with the exception of a few buyers at the margin – there's a lot more wiggle room in terms of qualifying. Especially in the condo market where we're starting to see more momentum and affordability is a lot more prevalent that in other cities."
The average condo price in Ottawa in 2017 was just more than $269,000, which was an increase of 3.4 per cent over 2016. However, compare that with the GTA's average condo price of $512,478 – essentially double – and there's an opportunity for young buyers to get into the market in Ottawa.
The tight rental market – the Ottawa vacancy rate is currently 1.7 per cent – is also nudging people into purchasing homes.
"We're seeing millennials come in to the market, rather than renting," Ottawa Real Estate Board president Ralph Shaw says. "Our rental market is so tight, so the young people are picking up the smaller, affordable condos."
Mr. Shaw points to the federal government as a steady employer helping to keep the market strong. Ottawa's technology industry is also booming; online retailing software developer Shopify, with a $15.4-billion valuation, recently announced plans to triple the size of its Ottawa headquarters.
Major retailers are also flocking to the city, with Whole Foods, Tiffany and Co., Nordstrom and Sporting Life all announcing expansion plans.
"[The market] has a lot of stability with the federal government. They do go in waves but they're a pretty stable employer. The technology companies right now are strong. The construction industry is strong," Mr. Shaw says. "All the main driving forces are active right now."
Affordability has certainly propelled the market – almost 10,000 of the residential units sold in 2017 in Ottawa were less than $500,000 (Canadian). Ottawa's luxury market is also booming.
Of all the homes sold in Ottawa last year, 257 were valued at more than $1-million, versus 155 in 2016. Meanwhile, 25 condos were sold more than $1-million versus just nine in 2016, according to the OREB.
Marilyn Wilson, owner of Marilyn Wilson Dream Properties Inc., sold the highest-priced home in 10 different Ottawa neighbourhoods in 2017 and 53 per cent of the homes more than $2-million. She says Ottawa has always been known for its stable real estate market and that is comforting for buyers.
"We have been extremely busy in December and January and we are seeing a demand for good homes in various neighbourhoods across the city," Ms. Wilson says. "We are also seeing a demand for luxury condos, and we sold more luxury condos last year than we ever have. This is a wonderful time to invest in the Ottawa marketplace. There is a demand for good properties. Prices will continue to be strong for properties that are turnkey and properties with beautiful lots."
MoneySense magazine named Ottawa as the No. 1 Place to Live in 2017 and Ms. Wilson says there is national recognition that Ottawa offers one of the best living environments in Canada. She says buyers who are looking to cash out of inflated markets such as Toronto and Vancouver are coming to Ottawa.
"You can live very well in Ottawa," she says. "The choice to move to Ottawa from these markets is often driven by either a desire to upsize by people who are priced out of their local markets or a desire to cash in on their home's equity."
Foreign buyers also have their eyes on the capital, according to Ms. Wilson.
"Though we have always had international buyers, we are seeing more and more of these as many international buyers who are now priced out of the Vancouver and Toronto markets are coming to Ottawa," she says.
Between condos and townhomes, affordable detached homes, or luxury properties in Ottawa's can't-miss neighbourhoods such as Rockcliffe Park, the Glebe, or Westboro, the appetite for homes has been a boon on the capital's construction industry as well.
Developers launched more than 7,400 housing projects in 2017, the highest number in more than a decade according to the Canada and Mortgage and Housing Corp., marking a 41-per-cent increase from the year before.
"[The condo] inventory [has been] growing dramatically the last few years. There was a slow down but there's been a strong recovery in the last 18 months … 12 months in particular. There's a bit of social engineering going on with the light rail. Municipal government is encouraging high density, making it a priority," Mr. Shaw says. "That's an incentive for builders to take on those projects."
Ottawa's new light rail project, The Confederation Line, will connect Blair Station in Ottawa's east end to Tunney's Pasture near the trendy Westboro neighbourhood, with an underground tunnel through Ottawa's downtown core.
Construction has continued for the past five years and the project is set to come online later this summer. The impact the LRT system will have on the housing market is already palpable, according to Mr. Shaw.
"Each community has a chance to do something different. The light rail is going to change some dynamics if you're looking longer term," he says. "The light rail is going to dramatically affect [some neighbourhoods]."
According to Mr. Kavcic, Ottawa's real estate market is showing no signs of slowing down. While he wrote it was primed to 'break out' in 2017, it will grow further still in 2018.
"The trends we've seen the last two years or so are probably going to run on for quite a bit longer still," he says.